Pareto optimality and Nash equilibrium for building stable systems

This paper introduces a design approach based on system analysis and game theory for the identification of architectural equilibrium which guarantees the stability of the system being designed and its environment after the integration. We introduce multi-objective optimization and game theory, and their links with systems engineering through mathematical models. While Pareto optimality is used to select best architectures and to support independent decisions, Nash equilibrium is used to find out architectural equilibrium and to support interdependent decisions. This approach was illustrated previously in a case study

Applications of Repeated Games in Wireless Networks: A Survey

A repeated game is an effective tool to model interactions and conflicts for players aiming to achieve their objectives in a long-term basis. Contrary to static noncooperative games that model an interaction among players in only one period, in repeated games, interactions of players repeat for multiple periods; and thus the players become aware of other players' past behaviors and their future benefits, and will adapt their behavior accordingly. In wireless networks, conflicts among wireless nodes can lead to selfish behaviors, resulting in poor network performances and detrimental individual payoffs. In this paper, we survey the applications of repeated games in different wireless networks. The main goal is to demonstrate the use of repeated games to encourage wireless nodes to cooperate, thereby improving network performances and avoiding network disruption due to selfish behaviors. Furthermore, various problems in wireless networks and variations of repeated game models together with the corresponding solutions are discussed in this survey. Finally, we outline some open issues and future research directions.Comment: 32 pages, 15 figures, 5 tables, 168 reference

La Crema: A Case Study of Mutual Fire Insurance

We analyze a mutual fire insurance mechanism used in Andorra, which is called La Crema in the local language. This mechanism relies on households' announced property values to determine how much a household is reimbursed in the case of a fire and how payments are apportioned among other households. The only Pareto-efficient al- location reachable through the mechanism requires that all house- holds honestly report the true value of their property. However, such honest reporting is not an equilibrium except in the extreme case in which the property values are identical for all households. Neverthe- less, as the size of the society becomes large, the benefits from devi- ating from truthful reporting vanish, and all the nondegenerate equilibria of the mechanism are nearly truthful and approximately Pareto efficient.Publicad

On Coalition Formation with Heterogeneous Agents

We propose a framework to analyze coalition formation with heterogeneous agents. Existing literature defines stability conditions that do not ensure that, once an agent decides to sign an agreement, the enlarged coalition is feasible. Defining the concepts of refraction and exchanging, we set up conditions of existence and enlargement of a coalition with heterogeneous agents. We use the concept of exchanging agents to give necessary conditions for internal stability and show that refraction is a sufficient condition for the failure of an enlargement of the coalition. With heterogeneous agents we can get a situation where a group of members of an unstable coalition does not deviate, neither within the coalition nor within the extended coalition. Hence, the possibilities of agreement are richer than in the standard analysis with homogeneous agents. Examples of industrial economics are used for illustration, and an application to climate change negotiations is discussed in more detail.Heterogeneity, Coalition, Exchanging, Refraction, Global Externalities

Mechanisms for Automated Negotiation in State Oriented Domains

This paper lays part of the groundwork for a domain theory of negotiation, that is, a way of classifying interactions so that it is clear, given a domain, which negotiation mechanisms and strategies are appropriate. We define State Oriented Domains, a general category of interaction. Necessary and sufficient conditions for cooperation are outlined. We use the notion of worth in an altered definition of utility, thus enabling agreements in a wider class of joint-goal reachable situations. An approach is offered for conflict resolution, and it is shown that even in a conflict situation, partial cooperative steps can be taken by interacting agents (that is, agents in fundamental conflict might still agree to cooperate up to a certain point). A Unified Negotiation Protocol (UNP) is developed that can be used in all types of encounters. It is shown that in certain borderline cooperative situations, a partial cooperative agreement (i.e., one that does not achieve all agents' goals) might be preferred by all agents, even though there exists a rational agreement that would achieve all their goals. Finally, we analyze cases where agents have incomplete information on the goals and worth of other agents. First we consider the case where agents' goals are private information, and we analyze what goal declaration strategies the agents might adopt to increase their utility. Then, we consider the situation where the agents' goals (and therefore stand-alone costs) are common knowledge, but the worth they attach to their goals is private information. We introduce two mechanisms, one 'strict', the other 'tolerant', and analyze their affects on the stability and efficiency of negotiation outcomes.Comment: See http://www.jair.org/ for any accompanying file

On Selfish Behavior in CSMA/CA Networks

CSMA/CA protocols rely on the random deferment of packet transmissions. Like most other protocols, CSMA/CA was designed with the assumption that the nodes would play by the rules. This can be dangerous, since the nodes themselves control their random deferment. Indeed, with the higher programmability of the network adapters, the temptation to tamper with the software or firmware is likely to grow; by doing so, a user could obtain a much larger share of the available bandwidth at the expense of other users. We use a game-theoretic approach to investigate the problem of the selfish behavior of nodes in CSMA/CA networks, specifically geared towards the most widely accepted protocol in this class of protocols, IEEE~802.11. We characterize two families of Nash equilibria in a single stage game, one of which always results in a network collapse. We argue that this result provides an incentive for cheaters to cooperate with each other. Explicit cooperation among nodes is clearly impractical. By applying the model of dynamic games borrowed from game theory, we derive the conditions for the stable and optimal functioning of a population of cheaters. We use this insight to develop a simple, localized and distributed protocol that successfully guides multiple selfish nodes to a Pareto-optimal Nash equilibrium

Cheap Talk, Gullibility, and Welfare in an Environmental Taxation Game

We consider a simple dynamic model of environmental taxation that exhibits time inconsistency. There are two categories of firms, Believers, who take the tax announcements made by the Regulator to face value, and Non-Believers, who perfectly anticipate the Regulator's decisions, albeit at a cost. The proportion of Believers and Non- Believers changes over time depending on the relative profits of both groups. We show that the Regulator can use misleading tax announcements to steer the economy to an equilibrium that is Pareto superior to the solutions usually suggested in the literature. Depending upon the initial proportion of Believers, the Regulator may prefer a fast or a low speed of reaction of the firms to differences in Believers/Non-Believers profits.Environmental policy, Emissions taxes, Time inconsistency, Heterogeneous agents, Bounded rationality, Learning, Multiple equilibria, Stackelberg games